agilon health, inc.

Hello and welcome to the Agile on Health second quarter 2024 earnings conference. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. And I'd like to hand over to Leland Thomas. Please go ahead.

Thank you, operator. Good afternoon and welcome to the call. With me is our CEO, Steve Sell, and our CFO, Jeff Schwanake. Following our prepared remarks, we will conduct a Q&A session. Before we begin, I'd like to remind you that our remarks and responses to questions may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligations to update any forward-looking statements. Additionally, certain financial measures we will discuss in this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a better and more complete understanding of our financial results and is consistent with how management views our financial results. A reconciliation for these non-GAAP financial measures to the most comparable GAAP measures are available in the earnings press release and Form 8K filed with the SEC. And with that, let me turn things over to Steve.

Thanks, Leland. Good afternoon, and thank you for joining us. On today's call, I would like to walk you through the following elements. Our Q2 results and forward guidance, including our latest outlook on utilization, the tangible and rapid progress we are making against our performance action plan, and important context around a series of recent organizational changes within our company. Turning to our second quarter results. MA membership grew 38% year-over-year to 513,000 members, and MA revenue grew 39% to $1.5 billion. These results were at the lower end of our guidance range, reflecting stronger-than-expected growth offset by the termination of select unprofitable payer group contracts retroactive to January 1st versus our previously communicated forecasts of termination dates at the end of the second quarter. As a result of our strong core membership growth, we are raising our full-year membership guidance to a midpoint of 519,000 members while modestly lowering our full-year revenue guidance due to a series of factors, including the retroactive contract terminations. The second quarter medical margin was $106 million, which translates to $69 per member per month and 7.1% of revenue. These amounts were in line or slightly below the midpoint of our guidance range, partially due to our decision to book a higher 7.3% Q2 cost trend versus our guidance of 6.8%. We continue to take a prudent posture on in-quarter cost trends until data and visibility prove otherwise. Year to date, medical margin was $263 million. This amount also reflects the contract exits mentioned above. We are maintaining our full-year medical margin guidance at $400 to $450 million, but expect to be towards the lower end of this range, as lower revenue will partially be offset by several factors, including higher volume and better payer arrangements. Adjusted EBITDA for the second quarter was minus $3 million, putting it at the high end of our guidance range. largely due to lower operations costs and some timing differences on new partner incentive payments offset by slightly lower MA medical margins. On a year-to-date basis, adjusted EBITDA was $26 million. For the full year, we are maintaining our adjusted EBITDA guidance range, reflecting lower MA medical margins offset by better overall market entry costs. Our Q2 results and guidance for the rest of the year assumes that medical cost trends remain at elevated levels, with Part B drugs and inpatient medical admissions being the principal driver. Paid claims data for our largest national payers, which are relatively complete through April, indicate that cost trends for the first quarter have receded favorably. and moderated further through the second quarter, although we have recorded a slightly higher Q2 cost trend relative to our prior guidance. This decline in trend line from Q1 to Q2 is also consistent with our real-time indicators, including our expanded use of payer census data, which indicates that inpatient utilization was down quarter to quarter with some intra-quarter variability. Well, these indicators are early. We view these data points as encouraging relative to where we book Q2 and our guidance trend assumptions. Turning to our performance action plan, we are making tangible progress executing our plan, which positions us to accelerate performance and profitability. As a reminder, our plan includes the following four elements. One, refining our strong payer relationships. Two, increasing the engagement of our primary care doctors to narrow variability. three, improving data visibility and analytics, and four, accelerating our operating efficiency. Let me provide a few updates, starting with our payer relationships. As discussed on our last call, our physician partnerships are critically important to payers as a key part of their network and value-based care strategies. Ongoing changes in the environment continue to drive productive discussions with health plans reflected in our year-to-date results, and second half forecast. These discussions include off-cycle percentage of premium rate increases to reflect higher costs from payer bids and macro utilization, in-year 2024 relief for payer-specific issues, and three, exiting unprofitable MA contracts. As previously discussed, each health plan contract change has been and will be made in close collaboration with our local physician partners. Most of our discussions with health plans have focused on 2025, specifically the scope and magnitude of our 2025 risk arrangements and the payer's respective bid filings. These discussions continue, and the next few months will be a critical period for firming up our network payer and product mix for the coming year. Turning to our work with our physician partners to reduce PCP variability in delivering care. We have made great progress in educating and supporting PCPs in caring for their highest risk patients. Across 20 plus markets and approximately 75% of our primary care doctors, we have initiated an active panel review with the local medical director and care team helping each PCP, one, understand and benchmark their performance in our total care model, two, create clear action plans for their highest risk patients, which drive 50% of our overall spend. And three, identify any operational issues that may be inhibiting performance. The early results from our scaled markets that have implemented this process are encouraging. We are seeing an 8% average reduction in ER and hospital admin events for high-risk patients when we compare January and February to May of this year. By comparison, markets that have not implemented this process are seeing no change in admin events for their high-risk patients. To accelerate and further support this process, we have invested in adding executive medical director positions to guide our local medical directors and have filled these positions from experienced primary care leaders in our network. While it is very early in both the execution and measurement of this focused PCP activity, The results reinforce the potential of Agilent's network of engaged, informed, and appropriately supported primary care doctors to deliver differentiated cost and quality results for senior high-risk patients. Turning to data visibility and analytics, we are continuing our financial data pipeline implementation and have approximately 75% of our total lives onboarded. We remain on track to onboard the remaining balance of member data as we move through the third quarter and full year. This quarter, we also moved all partner administrative data into our new data lake. This combined health plan and partner data visibility is a vital component of our cost and quality management strategy, since our data pipeline enables internal teams to process and analyze medical cost trends in detail by payer and service category faster. With this increased visibility, longitudinal analyses of performance such as disease state, cohort maturation, and patient complexity inform PCPs to deliver differentiated cost and quality results for their high-risk patients. Similarly, our finance teams have a more comprehensive payer-level analysis of revenue, risk adjustment, medical expenses, and product mix, which allows us to better manage payer contracts and understand how payer decisions affect overall Agilon performance. We are pleased with this progress so far and expect to continue to refine how we incorporate this improved visibility into our clinical, operational, and financial functions. Finally, we have made significant strides through accelerated centralization and better use of technology. to reduce our platform support to approximately 3% of revenues, reflecting a 110 basis point year-over-year improvement. On the organizational side, I am encouraged by the recent moves that have strengthened our team and positioned our network of physician partners to further differentiate our performance in this dynamic environment. First, just over a month ago, we welcomed Jeff Schwanake as our new CFO. Jeff brings a deep set of experience within managed care as Centene's former CFO and previously served on our board of directors. Jeff's positive impact on our management team and the broader organization is already being felt, and I am very appreciative that he is in the CFO chair. Similarly, on July 10th, we announced Dr. Karthik Rao as our chief medical officer, co-leading our clinical strategy and overseeing network performance alongside Agilon's Chief Clinical Officer, Dr. Kevin Spencer. Together, Kevin and Karthik have revamped the critical roles of our regional and market medical directors and strengthened our system to provide information to each PCP on the identification and care management of their senior patients with a particular emphasis on their most complex patients. This work sits at the heart of what differentiates our credibility with our partner physicians. Today, we announced in our 10Q filing that Birol Desai, our chief strategy and development officer, will assume a new long-term strategic advisor role focused on future growth opportunities and payer strategies for the company. I am pleased we will continue to benefit from Birol's deep understanding of our business model and commitment to our mission. Given the importance of our health plan relationships and strategy execution, our payer team will now report directly to me. This team will be led by Sarah Machover, a veteran senior leader within Agilon who has extensive experience in our business model and strong relationships with our payer partners. In closing, we are making continued progress towards our vision of enabling primary care doctors to transform the delivery of senior patient healthcare in their communities. The success we are seeing with payers and the higher than expected growth in both PCPs and senior patients on our platform are important indicators of the unique position we have established in the scaled management of full-risk care across 13 states and 30-plus communities. While the environment for Medicare Advantage remains challenging in the near term, we remain disciplined in our focus to differentially manage controllable costs and receive equitable reimbursement which should only strengthen our relative position to physicians and health plans. With that, let me turn the call over to Jeff.